• Is Avid a good investment today?

I recently bought an Avid MBox 3 Mini with Pro Tools 10 and posted about it. My post was mostly about whether new gear had ever really helped my abilities much, but a comment made by Chaco D about Avid’s aggressive and uncool upgrade pricing got me thinking Avid the company and what its fate might be. Being an amateur but seasoned by PAIN investor I checked Yahoo Finance to see what Avid stock was selling for these days. Last time I checked was in 2005 and the stock was at $60. I remember being mad because I had sold my shares well before the run-up got even close to $60, which turned out to be a peak. Today Avid stock sells for, drum roll -- please -- about $6. Given that the number one rule of investing is buy low, sell high, I had to ask myself, “Is Avid a buy?”

Yahoo Finance reveals that at today’s price you can pay roughly $6 for nearly $18 in revenue. Delve into the facts about Avid as a company and you’ll learn that it’s an industry leader with great market share and not one but two powerful brands (Avid and Digidesign). But dig a little deeper and you’ll see two big problems: very little cash and an inability to cover costs, meaning that the cash is dwindling. I’ve seen this movie before and it usually only ends badly, which is what I think the case will be for Avid.

The company’s video editing business is under siege from the likes of Final Cut and other low-cost options; the company’s audio editing business is under siege from the likes of Logic at the high-end and Garageband at the low and a slew of other products in between. The problem: in both video and audio Avid is a victim of the good enough syndrome, created, in part, by Intel’s relentless improvements in processors, which is allowing the Average Joe to put together a good-enough video/audio editing system for not much more than a decent PC.

So, what’s Avid doing about its plight? I have no idea what the company’s plan is for high-end video, but in audio it seems to be to squeeze loyal users for every possible penny, plus a few more, while offering little in return. I say this not only because of Avid’s offensively aggressive upgrade pricing and schedule, but also because of the fact that the biggest “innovation” in Pro Tools 9 and 10 is that they no longer require Avid/Digidesign hardware. Which brings me to Avid’s Achilles heal: the whole company is structured to sell hardware, yet hardware has become mostly a commodity. Unlike Apple, Avid has not done much at all in hardware that could be considered innovative, at least not at the low-end (compare Avid’s clunky MBox 3 series to Apogee’s Duet II). The software appears to be a different story, though, as Pro Tools has definitely gotten a lot better over the years. So, like countless computer companies of yore, Silicon Graphics being the best example, that saw their specialized hardware outclassed by Intel machines running whatever, Avid is also seeing its proprietary hardware business being ground to dust by competitors leveraging standards.

Going forward, Avid has two choices: 1) limit all hardware to those areas where Avid can bring real innovation (chips not being one of them!) or (2) file for Chapter 11 and come back as a software-only company. Choice one is never going to happen -- it’s a mindset thing -- leaving only choice two, which will mean that current shareholders will get wiped out. Wait, there is a third choice, which probably is actually decent and that’s that someone buys Avid. Rough guess, I’d say the company is worth $10, but of course that could crater if debt piles up. Oh, and one last choice is to buy now and sell at $10 or so should Avid spike because of current sales (which won’t last, I guarantee it).

Sad. Digidesign was a great company and has been a part of my musical life since just about 1994, right when Avid bought them. Hate to see Digi/Avid in such dire straits; then again, they have done nothing to earn my loyalty so, you know, I don’t fell that bad.